Lending to the infrastructure sector is likely to take a hit this fiscal with both banks and NBFCs increasingly concerned about bad loans emerging from the sector.

These concerns could mean that credit growth to infrastructure may remain sluggish even though the Cabinet committee on investments recently cleared Rs 1.83 lakh crore worth of projects.

The country’s largest lender, State Bank of India (SBI), said it is maintaining a ‘cautious approach’ in financing to the infrastructure sector and was lending only to the major companies.

"There has been a slowdown perceived since the second half of last year in inflow of new projects. Given the current scenario of relatively high interest rates and systemic issues in power, telecom and road sectors, we expect the growth momentum to remain low key in FY14,” SBI deputy managing director P Pradeep Kumar told FE.

SBI says it is being selective and lending only to the major players with adequate financial wherewithal, tie-ups, regulatory approvals and land. The caution comes against the backdrop of heavy restructuring already seen in the infrastructure portfolio. SBI has so far restructured as many as15 infrastructure projects with an aggregate outstanding of R3,507 crore. The bank said, as on date, seven accounts with outstanding of another R3,500 crore are in for restructuring.

Infra projects are being delayed due to issues like land acquisition, environmental clearances and fuel linkages leading to significant cost overruns.

For the banking industry as a whole, the gross NPAs and restructured standard advances for the infrastructure sector, together as a percentage of total advances to the sector, increased considerably from R12,190 crore (4.66%) as at the end of March, 2009, to R13,6970 crore (17.43%) as at the end of March 2013, according to RBI.

Banks are now concerned that any further lending to already stressed corporates in the infrastructure space could add to asset quality risks. "We are very cautious and generally discouraging further credit to infrastructure sector this fiscal,” said UCO Bank CMD Arun Kaul.

Kaul said the Kolkata-based bank’s restructured loan book in power discoms (distribution companies) alone stood at R5,900 crore out of the total restructured portfolio of R9,717 crore as on June 30, 2013.

Another PSU lender, Syndicate Bank, also says it is conservative and “generally not taking any interest” in projects unless there is major involvement of the Central government.